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Gerald Co. decided to switch from the FIFO method of costing inventories to the average cost...

Gerald Co. decided to switch from the FIFO method of costing inventories to the average cost method at the beginning of 2016. At December 31, 2015, Gerald’s inventory using FIFO was $36,000. Gerald inventory using average cost would have been $52,640. Gerald’s tax rate is 30%.

What is the change to Inventory? Indicate the amount and whether Inventory would be debited (D) or Credited (C).

Answer with the amount and either a D or C right beside the amount (no space. Example: if your answer is $1,000 debit, put 1,000D

Please show all steps and how you got each number

Business   Accounting   
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Answer #1
Retained Earning Credit 11648
Inventory value as per FIFO 36000
Less : Inventory value as per AVERAGE COST 52640
Increase in value of Beginning inventory of 2016 16640
Less: Excess TAX expense due to decline in value 4992
Total expense 11648
Note: (Tax effect is taken on every expenditure; Due to decline in value if opening inventory, our cost of goods sold for 2016 will get down because beginning inventory value is added in computation of cost of goods sold similarly our net profit of 2015 will get down because ending inventory is deducted in computing cost of goods sold)
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